i) Explain the three basic questions the financial manager in the firm will be c
ID: 428325 • Letter: I
Question
i) Explain the three basic questions the financial manager in the firm will be concerned in financial decision making. with li) Explain the three different legal forms of business organizations i) What is the more general financial management goal of the corporation and why is this goal preferable to the goal of profit maximization? iv) Are agency problem and agency relationship one and the same thing? Explain your answer. v) Explain stakeholders and stockholders and their differnce in the corporation. Do managers always act in the corporation's stockholders' interest in the corporation? Explain your answer
Explanation / Answer
i). The financial managers would be concerned with financial decision making by following questions:-
a - Impulsive threat to make hasty decision and ignoring data and its impact.
b- The ignorance about subject matter can result in loss making proposition.
c - Less delegation can also result in decision making by a single individual which can reduce the ideas.
ii). The different legal forms of business organisations are:-
a- Sole proprietorship:- In this form of business organisation single person is the owner of business and he takes all the risks or gain.
b - Partnerships:- Two or more people come together to form a business organisation. The assumes all the profit or losses together.
c- Limited liability company - Owners have limited personal liability. It provides flexibility to management and benefit passes through taxation laws.
iii). The financial management goal of a corporation is to provide benefit to shareholders. The dividends to shareholders are taxed as per complying laws. The goal to provide benefit to shareholders help in making the profit to company as well.
iv). When a principal hires a agent to do some work then agency relationship starts. The agency problem starts if there is conflict between principal and agent. The agency problem could arise between stakeholders and managers and between stakeholders and creditors.
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